The purpose of this study is to examine how corruption affects the prevalence of product and process innovation by firms.
This study uses firm-level data from the 2012–2016 Business Environment Enterprise Performance Surveys and utilizes a conditional mixed process model to address endogeneity concerns, taking bribery as a measure of corruption.
The study shows that measures of bribery are positively and robustly associated with innovation but mainly for firms reporting many competitors. The results are stronger for firms reporting more obstacles. Both findings support the inference that bribes facilitate innovation by allowing firms to evade regulatory obstacles.
The current research on corruption's effect on innovation restricts the association to be uniform across the sample, but this study shows that the impact depends on the degree of competition faced by a firm. In addition, the data used in this study cover 30 economies in Eastern Europe and Central Asia, and thus contributes to determining the effects of anticorruption practices in emerging countries.
